On Tuesday, President Bola Tinubu arrived in Paris, France on what is now his first official trip since becoming Nigeria’s president. Between today and tomorrow, he is expected to participate in the Summit for a New Global Financing Pact along with some other heads of State and government, as well as representatives of international organisations.
Attending a finance summit is perhaps a first important step for President Tinubu to be taking, as Nigeria more than ever, wobbles under the burden of debt, a lot of which the country is struggling to service. Accessing not only new sources of funding but on favourable terms is a challenge for Nigeria like much of the developing world.
Succinctly put: most of the terms as they exist today do not favour the developing world. There are many dynamics today that need to be factored into repayment terms of loans and to in fact, open up entirely new sources of funding.
In a document shared with BusinessDay, French government officials say the post-war international financial architecture is no longer sufficiently adapted to deal with the growing inequalities, climate change, biodiversity erosion and public health challenges prevalent in the 21st century. The international community’s responses are currently fragmented, partial and insufficient. Firstly, concessional resources provided by development institutions are not delivering their full potential in terms of impact, co-finance and alignment with needs. Secondly, the expansion of finance conditions and rise in debt are slowing investment in developing countries and do not provide them with means to address the challenges they are facing.
The New Global Financing Pact will help define the principles and steps needed to reform the global financial system and to combat the high levels of debt that tie governments’ hands
Yet, they also say international solidarity has never been more critical amid a growing number of crises that are weakening the poorest and most vulnerable countries to an even greater extent. To help the most exposed countries exit the COVID crisis, deal with the consequences of Russian aggression in Ukraine on their food and energy security, and cover the very high cost of climate transition and consequences of extreme climate events, it is necessary to scale up finance.
On a website dedicated to the summit, it is further noted that; “the international community’s responses are currently fragmented, partial and insufficient. We therefore call for a fundamental overhaul of our approach. Together, we need to build a more responsive, fairer and more inclusive international financial system to fight inequalities, finance the climate transition, and bring us closer to achieving the Sustainable Development Goals.”
According to the French government, which is spearheading this summit, 80 years after Bretton Woods, an overhaul of the international financial system is overdue. Today, June 22 and tomorrow, June 23, President Emmanuel Macron will convene heads of state and government, representatives of financial institutions, and representatives of the private sector and civil society in Paris to lay the foundation for a new system that will meet shared challenges: fighting inequality, climate change and protecting biodiversity.
Throughout its history, France prides itself as “an honest international broker and helped unlock some of the most intractable issues – from closing the HIV/AIDS funding gap to enhancing liquidity access for middle-income countries in Africa. Now, seven years after the landmark Paris Agreement, world leaders will once again gather to conceive a fairer, more sustainable future for our planet.”
The Summit for a New Global Financing Pact is expected to establish the principles for future reforms and pave the way towards a more balanced financial partnership between the North and South. It will set the stage for new agreements to relieve debt distress. It will also enable more countries to access the financing they need to invest in sustainable development, to better protect nature and cut emissions, as well as help protect populations from climate change wherever most needed.
To rebuild credibility in the international (finance) system, France says there is the need for a new pact that offers a level playing field, shares the burden of climate change, and builds prosperity and security for every country. The New Global Financing Pact will help define the principles and steps needed to reform the global financial system and to combat the high levels of debt that tie governments’ hands when it comes to implement ambitious climate action to reduce the climate, economic and technological gaps that threaten to divide up our world.
The document shared with BusinessDay also notes that the global financial system inherited from Bretton Woods has reached its limits at a time when the world faces two major threats to the future of the planet. The first is insufficient support for development and for the protection of global public goods due to a lack of resources. The second, which is even more crucial, is the risk of geopolitical fragmentation, at a time when effective multilateralism and enhanced cooperation is needed more than ever.
France says a number of G7 and G20 countries, organizations and associations share this observation with it and wish to promote the same conviction: “We have to act fast and join efforts to correct the imbalances and injustices generated by these divides. We are therefore now calling for a review and shake-up of finance.
“We must together drive change in our global financial system to make it more responsive, just and inclusive, fight inequalities, finance the climate transition and biodiversity protection, and move closer to achieving the United Nations Sustainable Development Goals (SDGs).”
This, the French say, is the objective of the Summit for a New Global Financing Pact. It intends to be inclusive, with every country, every opinion and every proposal getting a chance to be expressed.
This Summit, it says, is part of a positive momentum. The launch of reforms by the World Bank, the G20 Presidency of India and that of Brazil right after, the SDG mid-term review and commitments made at COP are all reasons for hope to build on this momentum.
Some tangible solutions have already been initiated: the Paris Club and the G20 launched an initiative for debt treatment, and France plays a pivotal role in implementing coordinated solutions under the Common Framework. The country also says it has proposed and obtained the issuance of $100 billion in IMF Special Drawing Rights for the most vulnerable countries. All countries in a position to do so must take part in this effort. Several multilateral development banks have begun to respond to the G20’s requests and have implemented initial measures to optimize capital to increase their lending capacity.
But the world must now go a step further, following the example of the Bridgetown Initiative, a set of innovative solutions spearheaded by Barbados to address climate vulnerability affecting many middle-income developing countries, France says.
It also intends to promote a reform agenda for development banks and the IMF to provide more finance to countries in the most need as well as global challenges. It is an agenda that aims to improve existing instruments and capital and to promote innovative approaches and instruments to support the poorest and most vulnerable countries. It also aims to mobilize more private finance using risk-sharing and guarantee mechanisms to redirect financial flows towards these countries to support the local private sector and durable infrastructure. This requires stepping up the use of our instruments and public and private innovative and new financing mechanisms.
“To be more effective, our international financial institutions should be able to do more than what is currently done to work better together, while better engaging the private financial sector and mobilizing private savings,” France says. “To be more inclusive, we must above all give a greater voice to the most vulnerable countries in international fora.”
The Summit for a New Global Financing Pact highlights global finance challenges and the many leaders participating will give the impetus needed to carry out the transformations the global financial system requires.
“We do not have to choose between fighting poverty, tackling climate change and its impact and protecting biodiversity. A just transition is the only answer,” the document concludes with.
Today, there is a risk that through lack of cooperation and insufficient ambitions, the world will fail to meet SDG targets and the net zero objective. Public debt is at record levels across countries and one-third of developing countries and two-thirds of low-income countries are at high risk of debt distress, according to the Summit’s website. It therefore becomes expedient to galvanise global action towards a new pact for financing that does not leave anyone behind.
Nigerians wait with bated breaths to see how much President Tinubu’s participation in this summit, and his first official trip will yield dividends for the country’s ailing finances.